Precious metals in bearish trajectory
Gold prices recorded most challenging week as the US dollar and bond yields strengthened following a stance from US central bankers that pushed back against early expectations of interest rate cuts
image for illustrative purpose
Hyderabad: Gold futures on MCX were trading at Rs61,988/10gm on last Friday (January 19, 2024), lower by Rs1,690 or 2.65 per cent from recent high of Rs63,678 on December 27, 2023.Gold futures on MCX rose Rs4,703 or 8.20 per cent from low of Rs57,285 on October 9, 2023, and Rs5,091 or 8.94 per cent fromRs56,897 on March 8, 2023. Bullion prices have been reeling under pressure despite geo-political unrest in the Middle East region.
“Looking ahead, on MCX, Gold prices may continue on a bearish trajectory, finding support near Rs61,000 and encountering resistance near Rs62,500. Silver is anticipated to mirror gold’s movements, trading within the range of Rs68,700-73,000 per kilogram,” Ravinder Kumar, senior research analyst (commodities) at SMC Global Securities Ltd, told Bizz Buzz.
The price of gold is expected to test $2,115 level in the current up-move on any correction if $2,035 holds. The US rate rise prevented any upside for gold or rather limited it for almost one year now despite high global inflation. During the second half of 2023, the yellow metal surged from the lows to above $2,000 per ounce and currently hovering at $2,050 level.
On Comex, Gold prices encountered resistance around $2,060 and found support near $1,990. A decisive move in either direction is poised to set the tone for the next trend. Meanwhile, Silver is expected to trade within a broader range of $21.90 to $23.40per ounce.
Kumar further added that “gold prices experienced their most challenging week as the US dollar and bond yields strengthened following a stance from US central bankers that pushed back against early expectations of interest rate cuts. Bullion faced downward pressure as traders recalibrated their rate-cut expectations in response to robust economic data and the Hawkish tone adopted by Federal Reserve speakers. This adjustment offset the safe-haven appeal typically associated with geopolitical tensions in the Middle East.”
The Dollar Index surged nearly one per cent for the week, while the yield on the benchmark US 10-year Treasury reached a fresh five-week high at 4.1710 per cent. Atlanta Federal Reserve President Raphael Bostic’s remarks added nuance to the scenario, expressing openness to earlier rate cuts depending on the pace of inflation decline, albeit maintaining a baseline projection for cuts in the third quarter.
Market sentiment, as reflected in LSEG’s Interest Rate Probability app (IRPR), scaled back expectations for Fed rate cuts to 139 basis points, down from 150 bps a week earlier. The likelihood of a March cut also decreased to 55 per cent from approximately 71 per cent the previous week, as per IRPR.
“The boom was possible with the depreciation of the US dollar against other currencies, and the fall in the dollar Index, both of which were possible due to the market’s perception that the US interest rates and more specifically the US official rate policy could turn soft very soon,” observes Kumar.
Energy
Crude oil concluded the week on a positive note, buoyed by escalating tensions in the Middle East and an optimistic global oil demand outlook. Ongoing geopolitical risks in the region, marked by additional US strikes on Houthi targets in Yemen, fueled concerns and supported oil prices, according to SMC Global Securities.
“Anticipated reduced demand and increased output, driven by warmer late-January weather, are likely to keep natural gas prices trading in the range of 200 to 250 in the upcoming week. Traders should closely monitor these factors for potential market shifts,” said Kumar. In the US, Energy Information Administration (EIA) data revealed a substantial 2.5 million barrel decline in crude inventories for the week, surpassing the anticipated 313,000 barrel draw. On the demand front, the International Energy Agency (IEA) revised its 2024 oil demand growth projection upward to 1.24 million barrels per day, citing improved economic growth and lower crude prices in Q4. Meanwhile, OPEC maintained its forecast of a 2.25 million bpd demand growth in 2024, with a robust expectation of 1.85 million bpd growth in 2025.
The Middle East witnessed heightened tensions as Pakistan launched retaliatory strikes on separatist militants inside Iran. As the region's volatility spreads, traders refrained from taking short positions, exhibiting caution in building long positions amidst China's sluggish economic recovery. Concerns also lingered regarding a potential resurgence of U.S.-China conflict as the U.S. election approaches, posing a negative impact on energy demand. Looking ahead, crude oil prices may experience heightened volatility, finding support near 5900 and encountering resistance around 6350. In contrast, U.S. natural gas prices dipped to a two-week low due to a smaller-than-expected storage draw, with gas in storage remaining 11.2 per cent above the seasonal norm.
